David versus Goliath
You've got your business on the high street, you got a nice regular trade of locals who shop with you every week, profits are up, the sun is shining and everyone is happy. OK, maybe the sun isn't always shining.
But then. one of the big supermarkets open up an express shop right next door to you, selling a lot of the same products that you offer at sometimes half the price.
This is happening more and more these days at the big players are trying to take a piece of the convenience market. They can usually afford to sell products at higher margins than their "mother" stores while still managing to undercut the high street.
What do you need to do ?
For example, let's say you own a shop selling cup cakes. You sell 1000 per week at 2 each. As you are making in bulk, they only cost you 30p each to make so you are making a tidy 1.70 profit per cup cake.
Now, you have a reputation of having the best cup cakes in the area. You offer a variety of different flavours and you use top quality ingredients to make sure if somebody wants a cup cake, they are coming to you.
Now, your new supermarket neighbour is selling cup cakes at 1 each. They are mass produced, limited in choice and they don't offer the warm and friendly local service that you offer, but they are cheap. What's more, the manager next door has got wind of the fact that your cup cakes are now famous in the area and makes a big marketing push with posters in the window and cup cakes near the tills.
Suddenly, your sales drop from 1000 per week to 700 per week. Despite all that you can offer, people are still choosing price over quality and they are shopping next door.
So how do you get your customers back ?
Do you Drop Your Price ?
One option would be to drop your price. Let's say that you drop your priced from 2 down to 1.50 per cup cake. You would still be making 1.20 per cup cake and with a lower price, you should expect more footfall.
But how do the numbers stack up ?
1000 Cup Cakes Sold
300 Cost Price
Then, they dropped to
700 Cup Cakes Sold
210 Cost Price
Now let's say that lowering your price to 1.50 brings the 300 customers back in.
1000 Cup Cakes
300 Cost Price
That means that selling an extra 300 cup cakes would only bring in an extra 10 profit . So how about if you wanted to earn the same amount of profit as before ?
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If you we're selling cup cakes at 1.50 each and you wanted to make 1,700 profit you would have to sell 1,416 cup cakes .
So, not only would you need to bring back the 300 customers you lost originally, you would also need to find another 416 customers .
That also means you would also need make 42% more cup cakes to make back your original profit . With time as precious as it is when you own an independent business, the last thing you need is an increase in productivity when you are probably working to capacity as it is.
Use Cheaper Ingredients
Perhaps you could use cheaper ingredients ?
But with a cost price of 30p already, you are going to be hard pushed to find cheaper top quality ingredients. And you have a reputation for top quality muffins. Any decrease in taste quality will certainly not do anything to aid your footfall.
So what do you do ?
If you run successful business, sooner or later you have going to have some competition. Whether it be a big national company, or another local independent start up, somebody will see your success and decide that they want a piece of it.
Although I have chosen cup cakes for this article, this applies to any product. From cupcakes, to clothes, to jewellery shops.
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Posted in Publishing and Printing Post Date 02/21/2015